Semiconductor Consumption in China Exceeds Industry Expectations

Semiconductor consumption by electronics manufacturers in China is increasing at a rate three to five times the worldwide rate, according to a comprehensive report released Tuesday by PricewaterhouseCoopers.

The report states that semiconductor consumption in the Chinese market, driven by growth in electronics manufacturing, continues to outrun the rest of the world. Since the industry put a bottom from the last semiconductor business cycle in 2001, China’s semiconductor consumption market has grown at a 31.5% compounded annual growth rate [CAGR] compared to a worldwide market CAGR of only 10.6%.

In fiscal 2007 China’s semiconductor consumption grew by 23% to reach $88 billion, representing 34.4% of the worldwide semiconductor market. In contrast, the worldwide market grew by only 9% in fiscal 2006 and 3% in fiscal ’07. China consumed for the first time last year more than a third of the chips produced globally.

“Semiconductor consumption in the Chinese market is growing at a faster pace than what the industry anticipated,” said in a statement Mr. Raman Chitkara, global semiconductor leader at PricewaterhouseCoopers.

China’s consumption of semiconductors now exceeds the markets in Japan, North America, Europe and the rest of the world for the third consecutive year. However, the Chinese semiconductor industry, notes the report – remains widely scattered with no dominant players. This will most likely change within the next five years, as the Chinese semiconductor industry further matures and creates the right conditions for the emergence of a dominant player in the market.

The largest suppliers to the Chinese market continue to be the multinational semiconductor companies. Still, 32 of the top 70 suppliers to the worldwide semiconductor market in 2007, remain below average in terms of market penetration in China, the fastest growing semiconductor market in the world.

“Over the near term, established multinational semiconductor companies may find an unparalleled market opportunity in China, but over the long term the widening gap between consumption and production of semiconductors represents a domestic industry void that will inevitably be filled,” Chitkara said.

A recent analysis by the China Semiconductor Industry Association pointed out that China’s semiconductor industry grew only 1.1% in the third quarter of 2008, the slowest rate on record. While further slowing is expected, forecasts for China’s growth rate still exceed the worldwide rate by at least 50% for the remainder of this decade.